Estate Planning Guide
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Long Term Health Care Planning
Every national poll of older Americans confirms that one of their greatest worries is the possibility of outliving their retirement savings because of inflation. But there is another, more intimidating threat that is just as real: the possibility of losing those savings while trying to pay for long-term care. In 1900, one of every 25 Americans was over 65. Today, one in eight is over 65. Grandparents now outnumber teenagers, and the population is growing older by the day. By the year 2050, Census Bureau projections indicate that one in five could be over 65. In 1900, a 65-year-old American man had a life expectancy of less than two years. Today, the average 65-year-old man will live to be 80 and a woman of the same age can expect to live to be 85. Right now, one in 20 of all Americans over the age of 65, and one in five over 85, are in nursing homes1. These statistics do not include people with chronic conditions who are being cared for at home. Forty-three percent of people age 65 and older may spend some time in a nursing home2. Seventy percent of couples age 65 and older may have at least one spouse enter a nursing home3. The average annual nursing home cost nationally was $36,000 in 1994, and was as high as $80,000 in some areas of the country4. Obviously, long-term care is not something we can pretend happens only to other people. It is not a possibility, but a probability, in virtually every American family. Everyone maintains car insurance for their vehicle. Yet, the odds of an automobile accident are 1 in 2405. However, if it happens, your possible cost will be your insurance deductible of between $250 and $1,000. Most everyone maintains home insurance. Yet, the odds of a home fire are only 1 in 12006. Once again, your maximum cost will be your insurance deductible. However, as stated above, your odds of requiring a long term care event are 1 in 2! The potential cost could be $112,2387 OR MORE! What have you done to prepare for it? CARE PROVIDER. You need to decide who you want to have as your care provider if you become incapacitated. If you are married, you will usually want your spouse. However, what if your spouse is deceased, incapacitated, or just unable to take care of you? Who do you choose next? Obviously, discuss with your chosen care providers what you want them to do and make sure they are willing to act. BURIAL. Go ahead and make your burial plans NOW. I know it is hard, but it is much easier for you to do this than it will be for your family members to do it after your death or the death of a disabled family member. Additionally, if possible, go ahead and pay for your burial. A pre-paid burial is generally not considered a resource of yours for Medicaid qualification purposes. SUPPLEMENTAL INCOME. It is always hard to decide what you might need in supplemental or incidental income. Figure out what you spend now for "luxuries" such as glasses, dentures, cable television, clothing, medications, nutritional supplements, and other incidentals. Medicaid does not cover the cost of these items and, therefore, other money will have to be available to pay for them. MONEY MANAGEMENT. Who do you want to manage your money or the money made available for a disabled family member? It can be the same person as your health care provider. However, it might be wise to have someone else just to avoid the potential problems of having someone in charge of you AND your money at the same time. GOVERNMENT BENEFITS. Apply for all government benefits available for you or your disabled family member. Many benefits are resource-based. That means, in order to qualify, you have to have a limited amount of resources (property). Even if you are turned down for benefits, apply again! Sometimes, as the old saying goes, "the squeaky wheel gets the grease". Therefore, if you are persistent, you may be able to gain benefits from the government for which you may have been arbitrarily turned down. LONG-TERM CARE INSURANCE. Thanks to inflation, the price of long-term care has been doubling every ten years. Congress has passed tax legislation designed to encourage Americans to buy long-term care insurance. Under the new laws, people can make penalty-free withdrawals from IRAs and 401(k) savings plans to purchase long-term care policies. As with any insurance policy, it pays to shop around for the policy that best meets your needs. Look for one that will pay $100 a day toward nursing home bills or home care, and be sure your policy includes inflation protection. You can also elect a zero waiting day period so that the policy will begin paying from the first day. On the other hand, with Medicare paying up to 100 days of nursing care, you may want to elect a waiting period of up to 100 days. Avoid policies with premiums that increase as you and your spouse get older, and if affordable, try to get lifetime benefits. Depending upon your age, long-term care insurance can be expensive. Before purchasing a policy, consider all other alternatives. Visit with a nursing home administrator. Find out if your church's denomination offers nursing home or retirement facilities. Talk with your children about your long-term needs. By addressing the need for long-term care before it arises, you can protect your assets and those of your children. Available Government Benefits Before looking at available government help, you need to know about the types of care available. Long-term care can be divided into levels based on the types of services provided. The most professionally intensive level os that of providing medical care, such as the administration of injections, physical therapy, and rehabilitation. The middle level provides personal care, such as help with eating and dressing. The most basic level offers a clean and comfortable place to live and social activities. Institutional care may be defined as care that is provided by non-family members outside the home. Skilled nursing care is the highest level of care. It is primarily for seriously ill people who need constant medical supervision. Intermediate nursing care is provided for those who cannot live alone but who do not need 24-hour supervision by a registered nurse. Custodial care is the level of care most people have in mind when they think of a nursing home. It is also the level of care most people will need and the level of care they will need the longest. Although circumstances may make some form of institutional care necessary, most people would prefer to remain at home. Home-care assistance can range from installing grab bars in showers to providing the services of visiting nurses and therapists. The types of services frequently available for such assistance include (1) friendly visitor programs; (2) telephone reassurance programs; (3) meals-on-wheels programs; (4) homemaker services; and (5) transportation programs. Presently, home health care aides cost between $12.00 and $24.00 per hour8. Therefore, if this is the option you wish to choose, are you financially able to pay $288.00 to $576.00 PER DAY for such care? Finally, please keep in mind that caring for an aging relative is not just a financial burden, it can be an emotional burden as well. Reducing this kind of stress makes it easier to help loved ones continue to receive care in the home. Adult day-care programs are an excellent solution to the problem of caregiver stress. Respite care may also offer family caregivers a needed break. Please check with either the Department of Human Services or area aging services for the availability of such programs in your city. SOCIAL SECURITY. Social Security is a form of social insurance that provides basic income maintenance. An eligible individual receives monthly cash benefits based on the prior payment of a payroll tax ("FICA") by himself or herself, or by such a worker upon whom he or she is considered dependent. The benefits are payable to a covered worker if and when he or she retires or becomes disabled before age 65. Benefits also are payable to eligible dependents who become survivors on the death of a worker. Widows, wives, minor children and adult children who have been disabled from childhood are among the people who may be eligible as dependents or survivors. SUPPLEMENTAL SECURITY INCOME. The SSI program is for disabled and blind individuals of any age, and persons age 65 or older. This program can provide ain income to disabled persons who have never worked - including children - or persons whose disabilities prevent them from working. SSI is intended for those who have little income and few resources. SOCIAL SECURITY DISABILITY INSURANCE. The SSDI program pays benefits to eligible workers under the age of 65 - and to their dependents or survivors - to make up for income lost when the worker becomes disabled or blind and is unable to return to work. The SSDI program is ONLY available to persons who have paid into the Social Security System by working a required period of time in certain occupational categories. MEDICARE. Medicare is a form of public health care insurance that is available to people over age 65 or to people who receive Social Security benefits because they are disabled. They may be disabled workers, widows or adult children. A two-year wait is required between the time a person under 65 begins receiving cash benefits and the time Medicare coverage begins. Social Security taxes pay for most hospitalization under Medicare. Medicare was further expanded in 1986 to limit the patient's possible "catastrophic" liability for deductibles and coinsurance. This new coverage will be paid for by taxes on the beneficiaries themselves, using a sliding scale. Medicare coverage is divided into two parts. Part A, also known as the "basic plan" or "hospital insurance", is largely financed by the Medicare tax on salaries. You pay no extra premiums for Park A coverage if you qualify for it. Part B coverage, known as "medical coverage," helps pay for medically necessary outpatient care by doctors and other medical specialists. It also helps pay for some home health care and services. MEDICAID. Medicaid is a state-administered program of health care coverage for people with low income and assets and is subsidized by the federal government if certain standards are met by the state plan. In most states, anyone who is eligible for SSI is also eligible for Medicaid. Medicaid pays for hospital care, outpatient care by physicians and certain other health care providers and for board and lodging, as well as treatment, in certain long-term care facilities. New laws enacted under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) tightened the eligibility requirements and made it extremely difficult to qualify for Medicaid without first spending down your assets. Qualifying for Medicaid: It's Not That Easy M ost people have heard about Medicaid. However, the myths about qualifying for Medicaid are numerous! MYTH ONE: "If I go into a nursing home, the state will take all of my assets." This is simply not true as long as you have the ability to pay for your care in a nursing home. A nursing home is really no different than an apartment. You pay monthly. However, if you cannot pay, the State of Oklahoma will intervene and pay for your care, assuming you meet their qualifications. One of those qualifications is that you have made all of your resources available for your care or are attempting to make them available (such as selling property). If you refuse to make your resources available for your care, they can be taken or encumbered by the state for your care. MYTH TWO: "If I don't make enough in income to pay for a nursing home, I will qualify for Medicaid." In attempting to qualify for Medicaid, the applicant's income must be less than 300% of the SSI benefit level. For 2004, that amount was $1,692.00 a month. That simply means that if your income is greater than $1,692.00 a month, you cannot qualify for Medicaid. There are exceptions to those situations where you have a spouse who will still be living at home. Also, please keep in mind that Medicaid qualification involves TWO TESTS -- an income test and a resource test. If you have more than $2,000 in total assets (resources), you cannot qualify for Medicaid, regardless of your income. That is why you hear about people having to "spend down" their assets when they are in a nursing home. Although there are procedures available to assist those with income over $1,692.00 a month, if your income exceeds $2,500.00 a month, you cannot receive Medicaid qualification under any circumstances. MYTH THREE: "My assets are jointly owned with my children. Therefore, they don't count as my assets for Medicaid purposes." Unfortunately, many people think they are positioning themselves for Medicaid qualification by putting their children's names on assets as joint owners. However, as long as an asset or countable resource is in your name or that of a spouse, it is still considered a countable resource, regardless of who else is on the title. The only way to separate yourself from the asset is to COMPLETELY take it out of your name and that of your spouse. However, giving it to a child can cause problems if the child has legal problems. That is why the Special Needs Trust is such a valuable option to consider. MYTH FOUR: "If my spouse goes into a nursing home, my separate assets are protected." Oklahoma, like most states, imposes a duty on a spouse to provide for the other spouse. Therefore, in attempting to qualify for Medicaid, ALL assets of both spouses are looked at and considered. MYTH FIVE: "If my spouse goes into a nursing home, I can still keep half of our total assets. All I will have to do is spend down my spouse's half to qualify for Medicaid." In general, the spouse not in the nursing home can keep one-half of all countable assets on the date the other spouse enters a nursing home. However, there is a maximum amount of $92,760 (as of 2004) that the spouse can keep. In other words, if the TOTAL countable assets are $185,520 or less, the spouse staying at home can keep half. However, if the total countable assets exceed $185,520, then they must be spent down to that level before the spouse in the nursing home can qualify. Of course, even with countable assets of $185,520 or less, the half belonging to the spouse in the nursing home must be spent down. Caring for a Disabled Child W hen most people think about long term health care planning, they think about nursing home care for an elderly relative. That is one sort of long term health care planning. However, many times, a family must also consider long term care for a disable child as well. In any event, there are usually six problems facing the family considering long term health planning:
One of the most important things you can do for the benefit of your disabled child is to prepare a Letter of Intent. This letter of intent can be a list of instructions for your successor caregiver for the child so that the caregiver knows what you want and what you do to take care of your child. At Postic & Bates , we have guides to assist you in preparing your own Letter of Intent that you can revise regularly as your family situation changes. In order to properly protect assets for your disabled child, we recommend the use of a Special Needs Trust . This trust can be created and funded now, such as with a life insurance policy or other investment, or made a part of your Last Will and Testament or Living Trust. In either situation, the Special Needs Trust can provide for your disabled children and then, at the child's death, pay the proceeds of the trust either to your other children or to other family members, friends or charitable organizations. Since the trust is irrevocable, the assets within it are usually not considered a part of your estate for estate tax purposes and are protected from your creditors. 1. Health Insurance Association of America, Long Term Care: Knowing the Risks, Paying the Price, 1997; also, U.S. Census Bureau, 1995 2. The New England Journal of Medicine, 1991 3. The Wall Street Journal, 1990 4. New York State, Partnership of Long-Term Care, 1994 5. Life Association News, 1993 6. Life Association News, 1993 7. Assumes average nursing home cost of $44,895 per year and an average stay of 2.5 years. 8. Kiplinger's Retirement Report, Hourly Cost of Home-Care Help, January 2001 Postic & Bates, P.C. 2212 Shadowlake Drive |
